Gold and silver prices have had another solid week, with the precious metals trading above USD $1230 and USD $15 per troy ounce respectively.

In Australian dollar terms, the metals are also trading strongly, sitting above AUD $1630 and $20 per troy ounce, consolidating the impressive returns in Q1 that saw the metal rise 17% in USD terms.

The World Gold Council discussed that rally in just released article covering the outperformance of gold vs. financial assets in the last quarter, noting that the rally in gold was due to a number of factors, including:

• Ongoing concerns about economic growth and financial stability in emerging markets

• A hiatus in the rise of the US dollar

• The implementation of negative interest rate policies by leading global central banks

• The return of pent up investment demand for gold

• Price momentum (i.e. investors following gold’s upward trend).

These are all factors we’ve been discussing for some time, and we agree with the WGC that these factors are likely to see gold support investment demand from central banks and private market investors in the coming months, and that this is laying the foundation for a new bull market in gold.

In other gold market news, we’ve seen the continued accumulation of the metal from Russia, with recent data from the IMF suggesting the central bank there added 356,000 ounces to their reserves, making them the worlds largest gold buyer now, at the sovereign level at least, with UBS also noting that China are in the market as buyers again, picking up another 9 tonnes in March.

This week we’ll take a look at a number of charts, with the view of a more detailed macro update next week, which will include a bit about the Shanghai Gold Exchange, and the up coming Yuan based fix on April 19.

Technical update

with John Feeney

Look out below for stock indexes

This week we are going to start with our view on potential direction for stock indexes. The S&P 500 chart looks quite dire, and due to the very high correlation with other indexes it is a case of ‘look out below” for US stocks and in turn the ASX 200 this month and next.

With the last five year rally for the S&P500 based solely on a massive expansion of liquidity through QE and 0% interest rates, I do not see any macro fundamentals that can drive this market higher from here, especially considering the Fed is looking to now tighten monetary policy.

So what we are left with is a highly questionable outlook, which is now combined with a highly concerning technical setup for the S&P 500.

Comparing the current chart to the last bear market in 2008, we see some striking resemblances. The S&P 500 had a huge volume breakdown through the 200day moving average near the top of the market. The market then re-traced back to the 200day average, only to fail to hold it, then stayed below it for the entire duration on the 08/09 bear market.

We can see below the current chart, where we also had a massive volume breakdown in August last year, with one failed attempt at holding the 200DMA, and now a second attempt. The charts are signalling that the greater probability lies in a second failed attempt, and I personally think the sell-off in August 2015 was just the start of a bear market that has a lot further to run. Unfortunately for Australian investors, the ASX correlation to these markets means the same fate could befall the local index.

The MACD on the daily chart below has signalled a clear sell sign, which last occurred in November 2015.

The economic fundamentals are aligning with what the charts are telling us. The S&P bull market since 2009 looks stretched, and running out of momentum. The only thing to really change this would be a surprising uptick in earning for S&P companies. But as per the chart below, that may be wishful thinking.

S&P 500 Earning growth for Q1 this year should see a massive 8.7% negative decline on the previous quarter. Lead by a huge evaporation of energy sector earnings down over 90%.

The S&P 500 is in an earning recession, and has been for the last three quarters, which is the first time since 2009 that this has happened.

Anyone drawing a chart of the S&P 500 supposedly making new all time highs this year on some technical point alone is ignoring one of the greatest earnings recessions we’ve seen.

Gold at a cross road

Gold is at a bit of a cross road here short-term, and the market will soon decide whether or not the past few weeks of consolidation is over, and the market can soon propel the metal through the USD $1,280oz recent high.

There are both bullish and bearish signals at the moment, and we talked last week about the AUD, and the likelihood it would begin to pullback from the level near USD $0.77. This has taken place and supported both AUD gold and silver prices, as we are currently at USD $0.751 this morning.

The most concerning factor for bulls right now is the very large buildup in Commercial short positions that remain for gold. Commercials are usually seen as being right, but the Large Specs are not giving up at this point.

The weekly longer term chart for both USD gold and AUD gold are signalling a larger pullback as a probability, but the daily chart below looks like gold has a chance to push higher.

We do not have confirmation from the MACD on the daily USD gold chart below for a swing in momentum, but it looks close to giving a signal.

Looking at the AUD gold chart on the other hand, the MACD has signalled a buy sign. Gold’s big test here is to see if it can hold the 50 day moving averaging which seems to be a support level at the moment.

I think most that are watching the gold price at the moment are not thinking about whether the rally is over and the bear market remains, but are thinking ‘how long will this pullback last?”

That could be a warning sign, but bull markets do create their own momentum.

Geneva Swiss Bank sees gold reaching USD $1,500oz within the next 12 months as a possible scenario. The chart below identifies areas of strong support around $1,180 - $1,200 US with an expected rally from anywhere near these levels. We see this as a possibility given the economic challenges ahead and potential bear market for global equities just beginning.

As per the majority of our weekly commentaries for the last year or so, the importance of dollar cost averaging into this market can not be overstated, as we also have the Australian Dollar likely to work in our favour, even if USD gold does pullback.

Interview with the Financial Repression Authority

Last week, we had the pleasure of chatting with Gordon Long, from the Financial Repression Authority. Gordon has spoken to most of the leading lights in the world’s precious metal and investment community, and it is always a pleasure appearing on their show.

In this latest show we discussed a range of topics, including why we see central bank and emerging market demand as the bid under the gold market, but why we need western investors to push precious metal prices to the highs we fully expect in the coming years.

The other topic we focused on was liquidity, why we think it’s an undervalued virtue in an investment asset, and why investors looking for it will increasingly turn to precious metals.

You can view the video below.

Until next week

Jordan Eliseo

Disclaimer

This publication is for educational purposes only and should not be considered either general or personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, and past performance is not necessarily indicative of future performance. Any prices, quotes, or statistics included have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.